The U.K.'s Parliamentary Commission on Banking Standards will reportedly debate a 600-page report that it has put together tomorrow and on Tuesday, with probable topics of discussion including splitting RBS (RBS) up into "good" and "bad" banks, a lack of competition, excessive pay and inadequate regulation. One of the problems, says an official, is that the banks are too big and complex for effective governance.

A British parliamentary report could raise the idea of splitting RBS (RBS) into a good bank that can be privatized and a state-run bad bank that would hold the company's toxic assets. However, the report is unlikely to wholeheartedly endorse the idea. One problem is that Chancellor George Osborne says that splitting RBS would require the government to totally nationalize it first at a cost of up to £10B.

RBS trims the list of bidders for 315 branches, notifying Chris Flowers and partner Apollo Global (APO) their bid will not be a winner. This leaves 3 other P-E consortiums in the race, with bids estimated to be in the £800M-£1B range. The sale of the branches - known as "Project Rainbow" - is being demanded by regulators as part of the bank bailout (now 82% state-owned).

The U.K.'s biggest four banks (RBS, HBC, LYG, BCS) will have eliminated about 189K jobs by the end of 2013 from peak staffing levels, according to Bloomberg. At about 606K people worldwide, staffing levels will be the least since 2004. "The big bulky mass layoffs ... are probably gone," says an analyst, but expect employment numbers to drift lower as the lenders continue to struggle to find growth. Meanwhile, U.S. banks are happily picking off top talent from RBS.

Bloomberg gets out its calculator and works out that Britain's top four banks will have cut their combined headcount by 189,000 by the end of this year from peak staffing levels of 795,000 in 2008. RBS (RBS) will have cut 78,000 jobs and Lloyds 31,000 through lay-offs and asset sales, while HSBC (HBC) and Barclays (BCS) have also been making sizable reductions. The moves come as U.K. banks streamline their operations and boost their capital ratios under much regulatory pressure.

RBS's (RBS) board has reportedly held talks about identifying a successor to CEO Stephen Hester, placing doubt upon his long-term future as the bank prepares for the sale of the government's 82% stake. However, RBS's non-executive directors are keen to retain Hester, with one insider saying it's "likely" that he will be managing RBS for a good while to come.

Neither Lloyds (LYG+1.9%) not Royal Bank of Scotland (RBS+1.5%) will need to sell shares or accept more government aid as the U.K.'s banking regulator signs off on using future earnings and asset sales to fill capital holes. The banks "have advanced their plans to a position where disclosure is appropriate," says the Prudential Regulation Authority.

If Scotland were an independent state, its banking sector would have assets totaling 1250% of GDP, a U.K. government report says, throwing the financial risks inherent in a 2014 referendum on Scottish independence into stark relief. By contrast, Cyprus' banks had assets equivalent to 700% of economic output before the crisis. Such an "exceptionally large banking sector," centered around two large players in Royal Bank of Scotland (RBS) and Bank of Scotland would be vulnerable to financial shocks, the U.K. Treasury notes. Scotland's Finance Secretary called the report "a feeble attempt to undermine confidence" in an independent Scotland.

UBS upgrades global financials to Overweight from Underweight on a healing global economy, rebuilt capital, and the sector's shift "from being a net issuer to a net distributor of cash." Furthermore, the U.S. banking sector (XLF) is taken to Overweight as balance sheet strength and attractive valuations play well with the housing market recovery to create compelling opportunities. European banks (EUFN) are lifted to Neutral "with a preference towards Nordic and U.K. banks." Financials respond in London with LLoyds Banking Group (LYG) +2.3%, Royal Bank of Scotland (RBS) +3.3%, and Barclays (BCS) up 0.5%.

Royal Bank of Scotland (RBS) continues to slash expenses, announcing another 1.4K job cuts, these coming from the retail division. The bank - 81% state-owned - and hoping to become private again some day, has cut more than 30K positions and shed loads of assets since the financial crisis. Shares +2.1% premarket.

More on RBS' (RBS) Q1: Chairman says the bank may be "ready to privatize in a year." Losses tied to bad loans fall 26% as non-core assets have now fallen nearly 80% since the crisis. Business lending rises to £13.2B during the quarter. Shares -4.5% in London.

Jim O'Neill - the man in charge of the U.K.'s stakes in RBS and LYG - resigns today to return to BAML. It's taking longer than hoped to unload the government stakes (82% RBS, 40% Lloyds) as HMT ignores the well-heeled rule of trimming losers. However, political pressure for some sort of plan - maybe a breakup of the lenders or distribution of shares to the public - has been upped of late.

New regulations here and across the pond will eliminate $17B of trading revenue from the global banks, says Deutsche Bank - about 9% of total sales last year. The costs will be onerous enough, says Deutsche, as to maybe force the departure from FICC (bonds, commodities, currencies) trading of any firm with less than 6% market share. At risk: HBC, RBS, CS, MS, SCGLY.PK. UBS has already exited.

Royal Bank of Scotland Group (The) PLC is an international banking and financial services company. The Company through its subsidiaries provides banking products and services to personal, commercial and large corporate and institutional customers.